New energy has led to the vigorous development of some high-copper-using industries. Visual China / Figure
Gold prices are still breaking records. On April 12, 2024, the international spot gold stood at 2,400 US dollars / ounce, and the gold price of 6 domestic brand jewelry exceeded 700 yuan / gram.
After gold, the prices of silver, copper and a variety of non-ferrous metals rose.
From the beginning of 2024 to April 9, the price of spot silver has risen by more than 16%, outpacing gold. The price of international LME copper futures rose by more than 10%, and domestic Shanghai copper futures hit a record high.
Recent prices of aluminum, lead and zinc have all hit multi-month highs. The index, which includes tin and nickel, which tracks the performance of six industrial metals on the London Metal Exchange, has climbed 8% so far in 2024, outpacing the Morgan Stanley (MSCI) World Equity Index's 6.3% gain.
Jing Chuan, chief economist of Shanghai East Asia Futures Co., Ltd., analyzed to the Southern Weekend reporter that there is a correlation between the rise in non-ferrous metal prices.
Amid the hot market sentiment, the Shanghai Futures Exchange announced that it will implement trading limits on gold and copper futures from April 12, 2024. Song Hongxiao, a copper analyst at Zhuochuang Information, lamented to Southern Weekend: "This year may just be the beginning of a bull market. ”
When the price of gold rises sharply, the market will tend to choose silver, which is also financially valuable but not overvalued. Visual China / Figure
Gold in troubled times
A number of respondents said that gold, as the leader of this round of price increases, was mainly driven by the increase in holdings by central banks of various countries, among which emerging market countries such as India and China were the main force.
According to the World Gold Council, global central banks bought more than 1,000 tonnes of gold in both 2022 and 2023, with central banks such as India increasing their gold reserves for the ninth consecutive month in February 2024. According to data from the People's Bank of China, from November 2022 to March 2024, the People's Bank of China increased its holdings of gold for 17 consecutive months.
Jing Chuan explained that gold has significant financial attributes and was once the anchor of global currencies. After the collapse of the gold standard in the 1930s, the monetary systems of various countries shifted to the credit standard, and paper money began to circulate, decoupling from precious metals such as gold.
Under this system, over-issuance of money has become a common means for central banks to stimulate the economy. As debt continues to rise, the currency has become weaker and less effective in driving the economy, but the risks have become higher, and the value of gold has been re-valued. "Now there is a partial return to the gold standard, which is the long-term driver of the gold price rally. Jingchuan said.
The trigger is the deterioration of the geopolitical environment and the intensification of conflicts in recent years. In particular, the US dollar occupies a leading position in the international monetary system and has become a weapon to impose sanctions against other countries in times of conflict.
After the outbreak of the Russia-Ukraine conflict in February 2022, Western countries imposed economic sanctions on Russia, cutting off its SWIFT international settlement system and freezing foreign exchange reserves. Jingchuan believes that this has increased the concerns of other countries, especially emerging market countries, prompting them to increase their holdings of gold as a safe-haven asset.
Wang Yongzhong, director of the International Commodity Research Office of the Chinese Academy of Social Sciences, told Southern Weekend that with inflation in the United States, the real purchasing power of the dollar is also declining. Coupled with the market's expectation that the Federal Reserve will cut interest rates, the yield of the US dollar relative to gold may fall further, and the value of gold will become more prominent.
Ordinary consumers have also started to increase their gold purchases, which has helped the price of gold higher. "The leading factors of the folk saying 'prosperous antiques, troubled gold' are geopolitical conflicts and the Fed's expectation of interest rate cuts. Wang Yongzhong said.
Jingchuan said that when the price of gold rises sharply, the market will tend to choose silver, which also has financial attributes but is not overvalued, so the price of silver rises after the price of gold rises.
Not only gold and silver, but also copper has financial properties. Song Hongxiao introduced that copper has a wide range of applications, from construction and automobiles to electronic components. This allows copper to bear the safe-haven demand, rising in tandem with gold and silver.
Supply shrinks
Unlike gold, the price increases of silver and copper are also superimposed on commodity attributes, and prices are affected by supply and demand in the industrial market.
Gold prices have started to rise in 2023, with silver and copper prices only recently starting to gain traction. Jingchuan believes that in addition to the small increase in gold prices in the early stage, the pulling effect is limited, mainly because the demand of the industrial market will only begin to highlight in 2024, which also reflects the recovery of the global economy.
Wang Yongzhong introduced that about 60% of silver is used in industrial production, such as in photovoltaic and other fields, and copper is also widely used in the field of new energy vehicles. With the development of the new energy industry, especially the rising demand in China, the price of silver and copper has risen. Among them, copper prices are more obviously driven by market demand.
"New energy has driven the vigorous development of some high-consumption copper industries, and it is expected that this year's copper demand will be 3 million to 4 million tons. Song Hongxiao said.
At the same time, copper has shrunk on the supply side, and the pressure of production reduction has been gradually transmitted from upstream copper mines to downstream smelting, driving prices to continue to rise.
Song Hongxiao introduced that copper ore, as a non-renewable resource, has reached its peak at this stage. According to information on the official website of the Ministry of Commerce, Panamanian mining companies, which mainly export copper ore to China, suspended operations in December 2022, further exacerbating supply pressures.
In this case, copper mines have the power to set prices, which drives down the processing fees of downstream smelters, and the profits of smelters are damaged, and production is reduced. According to data from Shanghai Nonferrous Metals Network, after entering 2024, domestic copper concentrate spot smelting has been in a state of loss, with an average loss of 1,417 yuan/ton in February, approaching the lowest level in history.
After the smelter loses money, it also has to raise prices by reducing production. On March 13, 2024, the China Nonferrous Metals Industry Association organized 19 copper smelting companies to hold a symposium in Beijing to reach a consensus on reducing production load and controlling new production capacity, according to China Nonferrous Metals News.
Subsequently, Shanghai Nonferrous Metals Network reported that the joint negotiation group of China's imported copper raw materials composed of nine copper smelting enterprises including Jiangxi Copper and Tongling Company held a meeting on March 28 to propose a joint production reduction and recommend a production reduction of 5%-10%.
Song Hongxiao said that the world's copper smelting mainly comes from China, and the reduction of production capacity by Chinese copper smelters will directly affect global copper prices. Moreover, copper is regarded as a barometer of the economy because of its wide application, and is known as the "copper doctor", which will drive the price of other non-ferrous metals up. For example, copper, aluminum, zinc, etc. can all produce alloys, and the price of metals related to copper will rise when the price of copper rises.
Wang Yongzhong concluded that on the whole, the current commodity price increase is mainly reflected in non-ferrous metals and crude oil, crude oil prices are also affected by the intensification of geopolitical conflicts, and other commodity prices have not yet risen generally. However, the price increases of non-ferrous metals and crude oil may be transmitted downstream, triggering price increases and exacerbating inflationary pressures.
Southern Weekly reporter Wei Lincong
Editor-in-charge: Feng Ye